6/09/2009 @ 11:12AM

Out From Under The TARP

The government is set to get $68 billion back from the banking sector as the first group of 10 firms repays funds received from the Troubled Asset Relief Program.

The Treasury announced the expected repayments Tuesday without detailing which banks were included.
Morgan Stanley
,
BB&T
,
US Bancorp
,
JPMorgan Chase
, State Street and Capital One said they were repaying the funds.
Goldman Sachs
,
American Express
and
Bank of New York Mellon
are also thought to be among the chosen.

Northern Trust also joins the group even though it was not originally one of the 19 firms submitted to the Treasury’s stress tests. Up until Tuesday it had been understood that nine banks would be allowed to repay the TARP funds, a group that included the eight banking companies that were told in May they didn’t need to raise more capital after the stress tests and Morgan Stanley, which was told to raise $1.8 billion for an additional cushion but can repay the money anyway.

BB&T is repaying $3 billion. Kelly S. King, the bank’s chief executive, says the return of the funds gives the bank “greater flexibility” and allows it to focus on customers “rather than dealing with government distractions.”

Morgan Stanley, which is repaying $10 billion, said it would continue to work with the government “on the best possible framework to ensure the safety and soundness of the U.S. banking system.”

JPMorgan, which is repaying $25 billion, says the government can put the funds to “other critical purposes.”

Treasury says that combined with repayments from smaller banks in the program it will have taken back $70 billion of the $199 billion invested through the controversial TARP capital injection program since October. More than 600 banks participated.

Banks that qualified to repay have been able to sell new public shares and debt that is not guaranteed by the Federal Deposit Insurance Corp., two signs that banks can raise capital independent of government backing. That augurs well for the industry, which is struggling through the worst crisis since the Depression, “but we still have work to do,” said Treasury Secretary Timothy Geithner in a statement Tuesday.

The proceeds will go to Treasury’s general account, to reduce its borrowing and the national debt. They also “increase Treasury’s cushion to respond to any future financial instability that might otherwise jeopardize economic recovery,” the department said.

In the past, the Treasury has claimed that repayments to the TARP can be recycled. The legislation itself is ambiguous, saying that repayments must go to the general account but also that the Treasury is authorized to have “$700 billion outstanding at any time.” If funds are repaid, they are no longer outstanding. In testimony before Congress on Tuesday, Treasury Secretary Tim Geithner repeated his belief that repayment allows the Treasury to release new funds.

The banks that passed the stress tests with no need for additional capital have all received approval to repay their TARP funds. The Federal Reserve announced on Monday that the 10 banks that learned they would need to raise additional capital had submitted their plans to do so. The plans are under evaluation.

The industry is largely pleased to get out of the TARP. The financial services industry is well-capitalized, said Steve Bartlett, president and CEO of The Financial Services Roundtable, a trade group. This is a positive sign for the industry and the economy.